Expectations were high going into Microsoft's (NASDAQ:MSFT) earnings report on Wednesday. The stock gained more than 55% last year on the strength of its cloud services, pushing Microsoft's market cap above $1 trillion.

Investors were hoping for more of the same, and the company did not disappoint, delivering revenue that was more than $1 billion above expectations.

For the fiscal 2020 second quarter (which ended Dec. 31), Microsoft reported revenue of $36.9 billion, up 14% year over year, soaring past the high-end of management's forecast, which topped out at $35.95 billion.

The results also easily eclipsed analysts' consensus estimates of $35.7 billion. Operating income grew by 35% year over year to $13.9 billion, which resulted in diluted earnings per share of $1.51, up 40%, and easily surpassing expectations of $1.32.

Investors celebrated the news, bidding up Microsoft's stock to a new all-time high of $175 in after-hours trading.

The Microsoft logo outside its headquarters.

Image source: Microsoft.

Second verse, same as the first

Each of the company's major business segments delivered strong growth that exceeded the guidance Microsoft provided last quarter, illustrating the overall strength of the company's results. 

Productivity and business processes generated revenue of $11.8 billion, up 17% year over year. Within the segment, Office commercial products and cloud services increased 16% year over year, led by Office 365 commercial revenue, which jumped 27%.

LinkedIn delivered consistent growth, with revenue up 25% compared with the prior-year quarter, while Dynamics revenue climbed 14%, driven by Dynamics 365, which grew 42% year over year.

Intelligent cloud revenue again delivered the most impressive segment growth, to $11.9 billion, up 27% year over year. The segment was driven higher by server products and cloud services, which climbed 30% year over year, with Azure cloud revenue growing 62%.

While that's down from the 76% growth in the prior-year quarter, growth accelerated sequentially, up from 59% in the first quarter. Enterprise services revenue continued to trudge higher, up 6% year over year.

Growth from the more personal computing segment slowed to $13.2 billion, an increase of 2% year over year. There was brisk demand spike for Windows Commercial products and cloud services, which grew 25% year over year, while Windows OEM Pro grew 18%. Gaming revenue was the one sore spot, declining 11%, driven lower by weak console sales.

Commercial strength

Other metrics from the quarter show that the company is still tapping the vast cloud computing opportunity, and enterprises are increasingly favoring Microsoft's offering -- and, make no mistake -- it's the cloud that's driving this train.

Microsoft's commercial cloud business, which includes Azure, Office 365 Commercial, and Dynamics 365, among others, soared to $12.5 billion, up 39% year over year. The business also became more profitable, as commercial cloud gross margins grew to 67%, up 5 percentage points year over year, primarily driven by the improving margin profile of Azure. 

The data shows that Microsoft is benefiting from increasing demand, as commercial bookings grew 31% year over year, the result of new business and strong renewals, while the remaining performance obligation for the commercial business climbed to $90 billion, up 30%.

A man working on a tablet producing a cloud computing image and various graphs

Image source: Getty Images.

Continued momentum on strong guidance

Microsoft's guidance suggests the company expects its strong growth to continue. For the fiscal third quarter, management is forecasting revenue in a range of $34.1 billion to $34.9 billion, which would represent year-over-year growth of about 13% at the midpoint of its guidance. Even more telling, analysts' consensus estimates were calling for revenue of $34.14 billion for the March quarter, near the low end of Microsoft's forecast.

Management doesn't provide earnings per share (EPS) guidance, but based on the other metrics provided -- and assuming Microsoft buys back a similar number of shares during the quarter -- that would result in EPS between $1.38 and $1.53, solidly ahead of expectations for $1.24.

Microsoft has made a habit of underpromising and overdelivering on its guidance, and this quarter was no different.

Given its continuing focus on cloud computing and the success the company has achieved thus far, it's no wonder this technology stock has been one of the top performers over the past year, leaving Microsoft investors with their head in the clouds.